I'm a 38-year-old mutual fund investor planning a 12-year SIP, seeking guidance on portfolio rebalancing. What should I do?

I am 38 years old and have been investing in the below-mentioned MFs in SIPs. I am planning to invest for another 12 years. Please suggest if I need to rebalance my portfolio or if it is ok.

Parag parik flexi cap: Rs 3,000

Adity Birla sun life ELSS: Rs 1,000

Axis blue chip: Rs 2,000

Axis small cap: Rs 2,000

Axis ELSS tax saver: Rs 2,000

HDFC Small Cap: Rs 1500

Nippon India small cap: Rs 2,000

SBI small cap: Rs 2,000

UTI MNC fund: Rs 1,000

Mirae focused fund: Rs 2,000

Mirae large cap: Rs 2,000

Mirae ELSS tax saver: Rs 2,000

Reply by Rajiv Bajaj, Chairman & MD, BajajCapital Ltd.

Investing in mutual funds is one of the most effective ways to grow your wealth over time. As a 38-year-old investor planning a 12-year systematic investment plan (SIP), there are several essential aspects to keep in mind to achieve optimal outcomes—one of the essential aspects being portfolio rebalancing.

Portfolio rebalancing is the process of restructuring your investment portfolio to maintain its initial risk-reward profile. In simple terms, it involves the periodic buying or selling of assets to maintain an initial or desired level of asset allocation or risk. It is recommended to rebalance once or twice a year to ensure your investments stay aligned with your financial goals and risk appetite.

To execute portfolio rebalancing, the first step is to visualize your financial goals. As you are on a 12-year SIP, consider long-term financial objectives, for instance, retirement planning, funding for your child’s education, buying a house etc. Visualizing these will help you determine the necessary risk-reward ratio that can then guide your asset allocation.

As mentioned above, understanding an investor's unique combination of investment horizon, risk appetite, and goals is crucial before recommending a suitable investment strategy. In cases where the investment horizon is long and there's an appetite for aggressive risk, constructing an equity-oriented portfolio is advisable. Notably, your existing portfolio already encompasses schemes from various equity categories.

We recommend further developing the equity portfolio with exposure across different market capitalisations. Allocating your total monthly investable amount of Rs 22,500 evenly among the following funds would be considered:

1.    HDFC Large & Mid Cap Fund 

2.    Nippon India Growth Fund 

3.    Nippon India Multi Cap Fund 

4.    Kotak Multi Cap Fund 

5.    Parag Parikh Flexi Cap Fund (Existing) 

6.    HDFC Small Cap Fund (Existing)
 

This distribution strategy ensures that your portfolio remains diversified not only across different equity categories but also across various asset management companies. By adopting this approach, you enhance the resilience of your portfolio, mitigating risks associated with specific market segments or fund managers.

Reviewing performance of the mutual funds regularly will help identify non-performing funds, which could then be replaced with better-performing ones. This aids in maintaining the desired rate of return.

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)